How the new proposal from SEBI could impact your Mutual Fund investments

TomorrowMakers ™

How the new proposal from SEBI could impact your Mutual Fund investments

15 September 2017
India’s Security and Exchange Board’s (SEBI) is proposing to cut the current number of mutual fund schemes available to investors. Here’s what you need to know.

Have you ever been confused about choosing the right Mutual Fund (MF)? Well, the Security and Exchange Board’s (SEBI), which controls the securities market in India, could change that. The regulatory body’s mutual funds advisory panel recently proposed a change of rules and restrictions with respect to categorisation of MFs. 

SEBI aims to ensure that an asset management company has only one product offering in each category. This move might halve the current number of mutual fund schemes provided by asset managers to investors. 

Related: Dummies guide to Mutual Funds

The reason for reducing MF schemes 
Presently, investors have about 2000 MF schemes to choose from, which can be quite confusing and difficult. Often, when a scheme has two or more funds in the same category, the investment mandates aren’t clear. Additionally, it defeats the whole purpose of portfolio diversification. 
SEBI’s move will help simplify this choice for new investors by reducing the number of schemes available for investors to choose from. 

How will this affect mutual fund schemes provided by companies?
The numbers reveal that Indian investors pumped in Rs 3.43 lakh crores in various mutual funds in fiscal year 2016-17 . So, what will this move mean for MF companies? 

Related: Stop thinking you don’t have enough money and start investing

Experts say that it is unlikely that any of the existing schemes will be closed. However, in order to follow SEBI’s new rule, asset management companies might merge two or more funds, thereby leading to larger funds.

What does this mean for you?
If you have invested in any of these mutual funds, you will have to check whether the new scheme still suits your risk appetite, timeframe and purpose of investment. “If it does, then you can continue to hold the new fund without any tax implications,” Deputy Head of Mutual Fund Research at FundsIndia, Bhavana Acharya, told Economic Times. 
On the other hand, if the new fund does not meet your requirements, then you might need to reinvest in a fund of your choice. In this case, taxes will apply depending on that fund and its tenure.

Related: How to diversify your portfolio like an expert?

Conclusion
There is no reason to panic as yet; no date for the move to be put into effect has been decided. However, investors are encouraged to keep themselves updated with news about new merged mutual funds, so that they can make an informed decision.  

 

 
 

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